Michelin in the land of the Maharajas

Group- 9 MrityunjayBasak, 17/094 PragatiSrivastava, 17/104 Pratyasha Ray Burman, 17/106 Sweta Satpathy , 17/118 VenkateshBalakrishnan, 17/124

Key Issues
What

defines Indian tyre market? How to form strategic groups? Which segment is easiest to enter? Which segment is closest to Michelins global strategy?

Tyre Industry in India- Analysis

Market Share (by Value) of the Tyre Industry in India
MRF 21% Vs.
Goodyear 17%

Market Share (by Value) of the Tyre Industry in World

Local Companies 21%

Birla 7%

Others 17% Ceat 14% JK 20%

Pirelli, Sumitomo,Co ntinental.. 25%

Apollo 21%

Michelin 19%

Bridgestone 18%

Dominated by local players, unlike International Market

Tyre Industry in India- Analysis

HISTORY
Dunlop was first Ceat followed Indianization by takeover of subsidiaries by Indian companies

RECENT TRENDS

Strong growth in 2,3 & 4 wheelers total production doubled from 1994-2004 7-8% expected growth 20072015

TECHNOLOGY

Cross-ply or Diagonal (D) good for rough terrain, long expectancy, unsafe and fuel inefficiency Radial (R) low expectancy, low absorption, safe, and fuel efficient D had 65% market dominated commercial market R 85% of cars, non existent in CV

MARKETS

OEM, Replacement and Export Indian market dependent on OEM (automobile) Global market more of replacement Decrease in profitability Replacement market many independent garages and a few company shops High tariffs on imports

PRODUCTS

CV (bus and truck), car, 2 and 3 wheeler LCV, OTR and agri vehicle tyres 2 wheeler 29%, 3 wheeler- 19%, CV 19%, Car- 17%, Others 10% 2&3 wheeler growing fast, similar Tubeless growing by 20%, highly profitable

COMPETITION

40 brands, 70 million tyres Four main brands JK, Ceat, MRF and Apollo which account for 75% International brands are weak MRF- leader in CV, car, 2 & 3 wheelers JK- leader in CV, big player in car Ceat- widest range and Shoppe Apollo esport orientation and wide distribution

Porters 5 forces Analysis Indian Tyre Market

No switching costs Large number of players in the market HIGH Production of rubber not matching demand of tyres Lack of good quality rubber in India HIGH More than 40 players in India holding 95% market share Companies have almost equal market shares Availability of cheap tyres from China and South Korea MODERATE

Power of Buyers

Bargaining power of suppliers

Competitive rivalry

Only substitute is walking or animal transport, ship, trains Public transport will reduce need for tyres LOW

Capital intensive, low margins Tough for new players to break in and sustain

HIGH

Availability of substitute

Entry Barriers

Dimensions for Strategic Groups

The dimensions for the strategic groups are, The Value The Product Variety

12 10

21, 10

20.5, 8
8 VALUE 14, 7

7, 6
5 10

6 15 4 2 20 17.2, 4

20.3, 6 25 Value

0 PRODUCT VARIETY

Which Groups are Difficult to Enter? (from Porters)

1. 2. 3. 4.

Diagonal

Established players Stagnating markets Availability of cheap substitutes (Chinese) Only for heavy commercial vehicles & agricultural vehicles

1. 2. 3. 4.

Commercial Vehicles

Price is a priority here Speeds are low, so problem of safety isnt there Need long distance Cross-ply can be retreaded many times

1. 2. 3. 4.

Tubed

This is an established market Growth is stagnating Highly competitive Price sensitive

1.

OEM

2.
3.

Dropping prices due to price wars Less brand conscious There are established long term relationships

Which Groups have better performance?

Radial
Radialization in cars 28% to 85% (1995-2005)

2 and 3 wheelers
Highest growth rate 2 wheelers 7.3% growth Large market shares

Tubeless
20% growth yearly Sales by volume 6.3%

OEM/Replacement
Commercial vehicles- replacement is leader (by market share) Personal vehicles OEM is leader (by market share)

Which group to enter?

Radial

LCV,

Car and Specialty Replacement Tubeless

Porters 5 forces Analysis Indian Tyre Market

Switching costs negligible Large number of tyre manufacturers in the market but lower than before MODERATE Production of rubber not matching demand of tyres Lack of good quality rubber in India HIGH Niche segment, fewer players High chances of gaining significant market shares MODERATE

Power of Buyers

Bargaining power of suppliers

Competitive rivalry

No substitutes available Public transport will reduce need for tyres LOW

Capital intensive, low margins High technology requirements and specialized technology VERY HIGH

Availability of substitute

Entry Barriers

Justification

We have chosen this based on Michelins global advantagesinnovation Technologically advanced radial system Organizational values and structure will support high tech products No commercial vehicles which run on diagonal Higher margins- initially we will be a low volume, high margin product Initially enter replacement market which is brand conscious OEM takes time to form relationships Tubeless is higher technology and faster growing product- it is the future Through technology transfers, they can bring latest tech to India targeting modern, brand conscious, performance oriented customer This segment will also avoid the price wars and threat of cheap substitutes (Chinese) Large number of independent dealers ensure company doesnt require entrenched distribution structure to enter replacement market Input costs for Michelin are much lower 24%